Perking Up to Qualcomm

Today I want to focus on Qualcomm (QCOM), and I'll start with a bigger-picture chart that suggests where the stock may go. Once that's established, we'll zoom in on a daily chart to help you fine-tune a possible entry.

Below, then, is the weekly chart of Qualcomm. Note that the larger pattern constitutes a bullish pattern of higher highs and lows, and this will remain intact as long as the price stays above the July 2012 low. An ability to hold above that level would also tell us the minimum upside target is in the $73.16 area.

Now, here's another way to look for upside targets. I've measured quite a few of Qualcomm's prior rally swings, and -- as you can see on the chart -- they come to $21.71, $21.64, $28.21 and $22.89. Also notice that the current swing, from the July lows, has only amounted to $12.36 so far.

The typical targets I suggest come from extensions of prior swings, starting with the 1.272 Fibonacci ratio. However, we can also define targets through prior rally swings, as noted above -- because we the current rally may well turn out similar to one of those bounces. With that in mind, if we take 100% of these prior rallies and project them from the July lows, some of these projections come in between $74.80 and $75.98 -- not too far away from my first extension target.

Now that we know what our initial upside targets are in this stock, let's take it down to a daily chart and figure out how we can get involved on the buy side, and also define a reasonable risk level.

On the above chart, I am currently looking at a pullback zone where I would be interested in a buy-side entry, and where the risk can be relatively low vs. the potential reward if my bullish scenario starts to play out. The support cluster comes in between the $61.22 and $62.58, and the maximum risk can be defined below the prior swing low at $60.22.

That's where your risk will be defined, for example, if you get triggered into the buy side around the $62 area. So the risk would be roughly $2 for a possible reward of $11 or more, based on the minimum upside target handle of $73.

Bottom line: I am watching the current pullback in Qualcomm to see if it tests and holds above the key support decision above. If it does, I'll dial it down to a 30-minute chart and see whether it triggers a buy entry.